Productivity Growth: Physical Capital

Labour Productivity Growth Dept: There is no quick fix to boost productivity. But productivity growth is the key ingredient to improving our economic well-being. It will be even more essential as the demographic tsunami of an aging population approaches. Without improved productivity growth, Canada s underlying economic potential will begin to fade when labour becomes scarcer after 2015, according to Montreal Gazette. Economic theory suggests that a more educated labour force should lead to more investment in physical capital, for two reasons. First, labour becomes more expensive, which leads firms to substitute machinery and equipment for workers. Second, educated and skilled workers increase the return on investment in physical capital, encouraging firms and organizations to invest in productivity-enhancing technology, equipment and infrastructure and there are numerous reasons why Canada s productivity growth is weak, but the quality of Canada s labour force is not one of them. Canada has a well-educated workforce that has not been given the required physical capital machinery and equipment, technology, and infrastructure to maximize output for the hours worked. Yet Canada has suffered from chronically slow productivity growth for nearly three decades. Between 1985 and 2010, labour productivity growth in Canada fell to less than half the growth of the 1962 to 1984 period. (www.immigrantscanada.com). As reported in the news.